Thursday, December 27, 2007

British banks trading in London have received visits from US Treasury agents during which the Americans have spelt out very stern warnings over any dealings these banks may be having with Iran or Iranian-owned institutions, and threatening them with direct sanctions if they clear financial transactions for the Iranians.

The Americans have also contacted a whole range of international banks trading in and from London, giving them the same warnings.

These warnings do not simply accommodate US dollar-based transactions, but include any dealings of any kind, and in any currency. They are unequivocal; do business with Iran and risk US displeasure which can include denying you access to the US Bank Clearing System.

These warnings have had very serious implications for those Iranian banks which operate in London, some of which are in fact British institutions, and who having been in business here for many years, are regulated by the FSA.

Quite what right the Americans have to tell British banks who they may do business with is not clear, and to threaten them that if they clear British Sterling transactions for Iranian banks, that they will subject them to Patriot Act interdictions in the US, should be a matter of significant concern to the British Government, if for no other reason than it would seem to be a direct contradiction of the much-publicised ‘special relationship’ which we are supposed to enjoy with them.

And what has been the response from H.M Government to this news?

It can be best expressed as ‘studied indifference’!

It seems that the British Government under Tony Blair was not only willing to be George Bush’s tame poodle abroad, but was also quite content to stand by and do nothing while Bush’s agents swaggered around the City of London, threatening our banks with dire consequences if they continued with their lawful business.

Behind this scandalous scenario, lurks a hostile agenda, aimed directly at the commercial interests of Iran globally, and at their banking activities in the City of London more specifically.

For years, the US has designated Iran as a jurisdiction which is largely prohibited from doing business with US entities. Iranian banks have not been able to do business in the US since 1995. Settlement of US dollar transactions through New York was only permitted through the use of the so called “U-Turn” exemption. Iranian banks were able to settle US dollar payments by using non-US banks as clearing agents, who clear the payments through their US correspondent banks.

More recently, the US has sought to increase the pressure on the Iranian economy, using the excuse that Iran was seeking to further develop nuclear technology with the aim of developing a nuclear weapon, despite the absence of any meaningful evidence to prove the substance of this allegation.

The most immediate catalyst for this increased pressure adopted by the US was to allege that Iran, through its state-owned entity, Bank Saderat, Iran, and specifically its ‘London branch’, Bank Saderat plc, had been involved in making payments to agents of Hezbollah in Beirut. Again, this allegation has been made without any evidence being advanced to prove its veracity, and appears to be based entirely on the sole fact that Bank Saderat has branches in Beirut.

Bank Saderat plc is not a branch of the Iranian entity, but a wholly-owned subsidiary, an entirely British Bank which has been doing business in London since 1963. It was regulated by the Bank of England and now by the FSA. It is entitled to the same protection and support as any other High Street banking entity.

The USA deems the whole of the Hezbollah organisation to be a terrorist entity, as do the Netherlands, Israel and Canada. The UK and Australia include only the Hezbollah external security organisation within their terrorist definition. No other country in the world, including the European Union define Hezbollah as a terrorist entity, although some individual member states have categorised various actions as being reprehensible. Hezbollah is defined by many countries as being a freedom fighting organisation.

Iran is a signatory to the Treaty on the Non-Proliferation of Nuclear Weapons (hereinafter, NPT), and it has not sought to disguise the fact that it is engaged in the process of seeking to find ways of enriching Uranium. These activities have attracted certain focused sanctions from the UN, while the Iranian government has continuously asserted that this enrichment program is part of its civilian nuclear energy program, which it is permitted under Article IV of the NPT.

When the real facts are examined however, what is known and can be independently confirmed is that the most recent examination by the IAEA has demonstrated that Iran is generally in compliance with their internal requirements, and more importantly, that the December 2007 National Intelligence Estimate judged, with "high confidence,” that Iran had halted its nuclear weapons program in 2003. CIA

This most recent announcement however has not stopped some United States agencies from continuing to assert that Iran poses a generally vague threat to the West. This is not altogether surprising. Remember, these so-called intelligence people are the same ones who continued to insist that Iraq had weapons of mass destruction, long after the real truth was in the public domain.!

Whatever the realities of these different situations, why should these issues be considered sufficient to permit America to dictate to British banking institutions how and where on the globe they should be allowed to exercise their right to do business, and why does H.M.Government remain silent?

In 2007, the United Nations issued a short and limited sanctions list aimed at specific entities and individuals in relation to the provision of arms and related ‘materiel’. In the same notice, it continued to assert the rights of Iran to develop nuclear energy for peaceful purposes in conformity with its obligations under the NPT, and in this context reaffirmed their support for the development by Iran of a civil nuclear energy programme.

The Bank of England has issued its own very short list of proscribed persons and entities against whom they determine that trading sanctions exist. Subject to these provisions, British Banks are free to do business with whomsoever they decide.

When the Americans first alleged that Bank Saderat’s London entity was responsible for moving money to Hezbollah in Beirut, the bank’s management wrote first to the US Office of Foreign Assets Control (OFAC), completely refuting the allegations in their entirety but asking for any evidence of such payments to be shared with them so that the bank could check the veracity of their compliance requirements.

At the same time, the Bank instructed a leading British Accounting Consulting firm to undertake a complete review of all payments they had made to their Beirut branches to ascertain the truth or otherwise of the allegations.

Bank Saderat plc did everything they could to determine the truth or falsity of these allegations made by the Americans, but despite all their enquiries and investigations, they were unable to identify any payments at all which were not made to established payment accounts in their Beirut offices.

Their urgent requests for corroborative evidence to OFAC, fell on deaf ears. The Americans have to this date produced no evidence of any wrong-doing whatsoever. They have not even responded to the correspondence, yet they continue to skulk around the City’s streets issuing highly damaging threats to any bank which might contemplate conducting business with Iran.

This can be construed as nothing more than a unilateral campaign of economic sabotage and criminal disinformation, aimed at causing the highest level of financial damage to the Iranian economy with the ambition of bringing significant pressure on the Iranian people. Very sadly, these efforts have been working, and a large number of banks have acted in response to these threats. Clearly, they have taken the US threats of retaliatory action seriously, no bank wants to voluntarily cut itself off from good business sources, but they have decided that their US dollar-clearing requirements outweigh their commercial relations with Iran.

Why should the Americans do this? Because, believe it or not, they really believe that this economic pressure will lead to a policy of regime change in Iran?

Last week, while in Kuwait I spoke to a US Customs agent who in a series of dismissive asides, stated that it was the determined policy of the present US Administration to put such economic pressure on the Iranian people so that it would encourage a popular uprising among the people, with the ambition that they would overthrow the present Iranian government.

After its efforts to ascertain any evidence which could point at a failure within its own compliance procedures, Bank Saderat sought the support of the BBA who subsequently wrote to the UK Treasury, setting out a series of concerns they had identified which were having direct impacts upon Iranian banks in London. Their correspondence pointed out that non-US institutions had started to cease dealings in any currencies with Iranian owned banks, wherever incorporated and regulated, even though they had not broken any local or US laws.

They gave examples identifying how a number of leading international banks conducting business in London had withdrawn US$ clearing arrangements at very little notice;

·How a leading British institution had withdrawn Sterling clearance arrangements from at least one Iranian-owned bank;

·How a major Swiss bank would not accept transactions in any currency either on its own account or for third party accounts;

·How a major UK bank would not accept any transfer to third-party accounts in any currency if they originated from Iran or from Iranian-owned banks in the UK;

The BBA’s letter identified the egregious nature of what it called the ‘informal’ actions of US Treasury Officials, striking at the heart of what London offers as a place of business.

The BBA called for evidence, if it existed, to be produced by the USA, and called upon HM Government to provide more pro-active expressions of support for Iranian banks and to move from a stance which both the FSA and the Bank of England appeared to be adopting, of what was described as ‘studied neutrality’.

The BBA called for a meeting with officials to discuss these concerns!

And the response from H.M.Treasury?

An arrogant and dismissive 3-paragraph letter from Ed Balls who wasEconomic Secretary to the Treasury at the time, which wholly ignored all the points in the requests being made by the BBA for discussions.

The first paragraph contained a series of worthless platitudes about the Government and the banking sector working together to protect the City from illicit money flows, an issue which had not been addressed by the BBA because it was not germane; a paragraph which made an wholly irrelevant referral to the UN Resolution 1737, which again, was not part of the issues raised by BBA, because again, it was not germane; and finishing with a patronizing comment about the need for banks to make their own commercial judgements about whom they do business with.

Clearly, Balls, and those who advised him, thought that unlawful US threats to British banks and their commercial interests were not worthy of comment, and merely fell among the ordinary and relevant information which financial institutions should take into account when deciding with whom they could do business!

The British Government has so effectively sold the pass to the Bush Administration, that they can no longer be bothered to protect those commercial interests, nationally valued rights which once would have guaranteed a very stern riposte indeed. The New Labour Government has poodled so effectively that they will now stand, idly by, wagging their tail, while Bush’s Treasury attack dogs force their will on the international banking sector with impunity.

The true measure of a genuine friendship is that one friend can tell the other when they are behaving wrongly or in an improper way, without the information causing a rift in the relationship. It is about time that H.M.Government started to stand up to their US counterparts and started to tell them some home truths. Inviting them to go home and parade their particular brand of bank regulation inside their own jurisdiction would be a good place to start.

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!